Tuesday, February 26, 2008

Oil Price Breaks USD 100

The cruel effect of soaring oil price has surfaced around the world…. even the oil rich Gulf countries are not exempted. Read this interesting article from International Herald Tribune,

In the oil-producing Gulf countries, governments that are flush with oil money can soften the blow by spending more. The United Arab Emirates increased the salaries of public sector employees by 70 percent this month; Oman raised them 43 percent. Saudi Arabia also raised wages and increased subsidies on some foods. Bahrain set up a $100 million fund to be distributed this year to people most affected by rising prices. But all this government spending has the unfortunate side effect of worsening inflation, economists say.

I wonder for how long this strategy would work. This move would bog down their economy in long run and spoil their people. The labour market will be too expensive, it will ruin their effort to curb the inflation. OPEC has no intention to exert any effort to stabilize the oil price, but crossing their legs and smoking shisha leisurely.